The fear surrounding custodial wallets reached fever pitch late last year. With the dramatic collapse of FTX, the entire ecosystem rediscovered the value of the old adage “not your keys, not your crypto”.
Custodial wallets are wallets over which the user does not have complete control. A third party, like an exchange, would hold the private keys. This is important in case the organization controlling your custodial wallet becomes inactive or gets hacked. Non-custodial wallets add an extra layer of security, as you retain ultimate sovereignty over your crypto.
It is not just illegal activity and poor management that puts your custodial crypto wallet at risk. Whatever the case, hacks should be your biggest concern. Black hat hackers are looking for a payday with billions of dollars locked up in the most popular exchanges.
In October 2022, the Binance exchange was hacked for $570 million in one of the most high-profile attacks in cryptocurrency history. The BSC Token Hub, a cross-chain bridge, was exploited by hackers, resulting in the creation of additional Binance Coins (BNB) and the withdrawal of 2 million BNB.
FTX suffered an attack that caused hundreds of millions in losses shortly after declaring bankruptcy. However, that particular feat is shrouded in mystery and suspicion. Many members of the community are still not convinced that this was an actual exploit.
The end of 2022 was boom time for hardware wallets
The crisis of confidence in custodial wallets hasn’t been all that bad. It is no surprise that the hardware wallet industry has flourished as more merchants and holders seek to secure their funds.
Trezor, one of the two industry leaders, saw traffic increase by more than 350% in the days following the FTX bankruptcy. In the days before this, the company’s sales had more than tripled.
Hito, a hardware wallet that provides users with wireless charging and NFC, is another that has seen significant growth. “There has been an industry-wide upheaval. Ledger doubled revenue in the first month after the FTX collapse, and Ledger announced the partnership with Binance just before the FTX collapse,” said Mikhail Kirillov, CEO of Hito.
“Although HITTO announced its pre-sale less than six months ago, we can report a trend of doubling sales month after month following the FTX collapse.”
Hardware wallets are also closer to the intended use of bitcoin. Satoshi Nakamoto, the mysterious inventor of bitcoin, aimed to remove third-party intermediaries. “With an e-currency based on cryptographic proofs … money can be secure and transactions can be seamless.”
The devices themselves come in a wide variety of shapes and sizes. The smallest of them, like the Ledger Nano series, look like USB drives and can hang on your keychain. Some of the largest, like the NGRAVE ZERO or the ELLIPAL Titan, are closer in size to a small phone. They all come with different features, such as dust protection or an easy-to-use UI.
Hardware wallets are a subdivision of what is known as “cold storage”. A way to keep your crypto somewhere unconnected to the internet. Not all cold storage requires a device separate from your phone or computer. Software custodial wallets like MetaMask offer cold storage versions for added security.
Hardware wallet is not the only solution
Not everyone is a fan of hardware solutions. Last month, CZ, CEO of Binance – the largest centralized exchange – said, “For most people, 99% of people today, if you ask them to hold crypto on their own, they will lose it.” This is not surprising since most hardware wallet manufacturers owe their existence to the failures of centralized exchanges. But is he right?
“Time will tell,” continues Kirillov. “But with $70 billion lost from the collapse of Celsius, Terra, and FTX alone, it seems like asking people to keep their crypto in custodial exchanges is much riskier than losing a device (which no one owns anyway). Doesn’t matter). When it comes to custodial exchanges, “not your keys, not your crypto” is the inescapable lesson. [that] Users are tired of learning the hard way.
“Lose your device, no problem; As long as you have a backup of your seed phrase, the user can safely restore access to their funds. Yes, we think the time has come for users to have the tools to trust themselves on custodial exchanges. Hito is one of the easiest tools they can choose to use.”
There are software wallet options that also give you control over your crypto. Projects like Atomic Wallet allow your crypto to sit securely on your desktop. In recent months, Xerion and Frontier have announced easy-to-use browser extensions designed to work with multiple chains and different types of digital assets (including NFTs).
Many software solutions are designed to work with hardware wallets, so it’s not always an either/or situation.
Use a Dex!
If all else fails, Decentralized Exchanges (DEXs) allow you to swap your crypto while remaining in charge of your keys. If you are more of a trader than a holder, this is often the best solution. “DEXs (decentralized exchanges) are not the same as centralized exchanges like Coinbase and Binance,” says Ravindra Kuma, founder and CEO of Frontier.
“Centralized exchanges hold your assets for you, and you must verify your identity before trading. Decentralized exchanges do not ask for KYC (Know Your Customer), they do not require an account, and they allow you to trade. Let’s connect directly to other people’s wallets.
BeInCrypto has reached out to the company or individual involved in the story for an official statement regarding the recent developments, but has not yet received a response.